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Canadian dollar tumbles as Bank of Canada keeps interest rate on hold

The loonie was trading at an average price of 78.30 cents U.S., down 0.65 of a cent. Meanwhile, the Toronto Stock Exchange’s S&P/TSX composite index fell 50.37 points to 15,854.77.

Bank of Canada Governor Stephen Poloz announced that the bank will keep its benchmark interest rate at 1 per cent. The bank raised its rate twice so far this year. (courtesy: Bank of Canada/YouTube)

By The Canadian Press

Wed., Oct. 25, 2017

The loonie dropped sharply after the Bank of Canada kept its key interest rate target on hold Wednesday, as North American stock markets pulled back on profit taking.

The Canadian dollar was trading at an average price of 78.30 cents U.S., down 0.65 of a cent.

“The loonie seems to have had its peak when the Bank of Canada was raising interest rates and the reports of year-over-year economic growth were coming out stronger than people had expected,” said Norman Levine, managing director of Portfolio Management Corp.

“Now people are seeing that rates aren’t going to go up as fast in Canada as they were before and that economic growth in Canada will probably be lower next year than it was this year.”

The Bank of Canada left its benchmark interest rate unchanged Wednesday following two straight hikes since July in response to the economy’s impressive run over the last four quarters. The central bank warned it expects to stick to its rate-hiking path, although at perhaps a more tentative pace.

The Canadian dollar was trading at 78.21 cents U.S., down from an average price of 78.95 cents U.S. on Tuesday. (Jonathan Hayward / THE CANADIAN PRESS)

In its scheduled announcement, the bank said it held off this time in part because it expects the recent strength of the Canadian dollar to slow the rise in the pace of inflation.

The move in the loonie Wednesday came as the Toronto Stock Exchange’s S&P/TSX composite index fell 50.37 points to 15,854.77.

South of the border it was also a negative day, with U.S. stocks giving back most of their profits earned Tuesday.

On Wall Street, the Dow Jones industrial average tumbled 112.30 points to 23,329.46. The S&P 500 index gave back 11.98 points to 2,557.15 and the Nasdaq composite index was down 34.54 points to 6,563.89.

“I think in general markets have had the longest run, especially the U.S. markets, without a five per cent correction in recent or longer memory,” said Levine. “It’s not surprising you get some profit taking after some big runs. We keep expecting the five per cent, the 10 per cent correction, but we keep never getting it.”

Still, Levine added, while U.S. stocks are at the high-end of historic valuations, “they’re not blowout, stupid valuations.”

In commodities news, the December crude contract lost 29 cents to close at $52.18 U.S. per barrel and the December natural gas contract was down five cents at $3.08 per mmBTU.

The December gold contract added 70 cents to $1,279.00 an ounce and the December copper contract was down two cents to $3.18 a pound.

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